China makes the biggest cut in major mortgage rates, first since June, ‘step in right direction’ to support economy

This move will further reduce the burden on household budgets and encourage home purchases.

As of the end of December, China’s total mortgage lending amounted to 38.2 trillion yuan ($5.3 trillion), according to government data.

On the other hand, the one-year LPR, which indicates the market lending rate, remained unchanged at 3.45%.

“The LPR rate cut is another step in the right direction to address the deflation problem facing China,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, adding that more aggressive measures could be taken to increase the effect. He added that fiscal easing is needed.

“I think there will be more rate cuts in China this year. [US Federal Reserve] Once we enter a rate cutting cycle, the constraints facing the central bank will ease. Interestingly, the rate cut by the People’s Bank of China was higher than market expectations, which may indicate that policymakers recognize the need to act quickly. ”

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China has already taken a number of measures to shore up its ailing real estate sector.

Urban real estate financing coordination mechanisms have been established in more than 100 cities to strengthen collaboration between local governments and the housing sector and support the financing needs of real estate projects.

State broadcaster CCTV reported on Tuesday that financing for real estate projects worth more than 160 billion yuan (US$22.2 billion) had been expanded under this mechanism.

However, despite cutting the five-year LPR to an all-time low, the central bank is not ready for the large and widespread rate cuts needed to expand credit and, by extension, a strong acceleration in economic activity, according to analysts at Capital Economics. He remains reluctant.

“These cuts alone will have limited effect in spurring a recovery in home sales. Mortgage rates have already fallen by nearly 200 basis points since the end of 2021, but home sales continue to decline,” they wrote. said.

“The main obstacle to recovery is a lack of confidence in developers’ ability to deliver sold homes.

“Therefore, there is no doubt that efforts to ease funding tensions between developers are even more important.

“We expect at least one more rate cut this year, but the People’s Bank is well short of the large and widespread rate cuts needed to spur a recovery in private sector credit demand and economic growth. It will stop there.”

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The bank remains concerned about the impact of across-the-board rate cuts on the renminbi, which is under new pressure from rising U.S. Treasury yields, but said it would prefer to improve its existing credit allocation rather than seek to accelerate growth. Capital Economics, which seems to be in urgent need of this, added the following as a new achievement:

According to the national newspaper, commercial residential sales area was 1.12 billion square meters (12.06 billion square feet) last year, down 8.5% from a year earlier, while residential sales area was down 8.2%. Bureau of Statistics.

Meanwhile, commercial housing sales revenue decreased by 6.5% to 11.66 trillion yuan, and residential sales decreased by 6%.

Xu Tiancheng, senior China economist at the Economist Intelligence Unit, said lower mortgage rates and falling house prices are bringing back demand for housing, and the interest rate cut will support the overall real estate market.

“However, the off-plan property market will continue to struggle as existing homes are likely to benefit most and financing issues impact construction,” he said.